Learning Path
Question & Answer
Choose the Best Answer
A factory pollutes a river, leading to increased health care costs for nearby residents.
A new smartphone is released, resulting in increased consumer spending.
A local bakery donates leftover bread to a charity.
A public library expands its collection, attracting more visitors.
Understanding the Answer
Let's break down why this is correct
When the factory releases waste into the river, the bad water harms the health of people nearby. Other options are incorrect because A new phone does not add hidden costs to others; Giving away bread does not hurt anyone else; it only helps people.
Key Concepts
Externalities and Social Optimum
medium level question
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Deep Dive: Externalities and Social Optimum
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Definition
Externalities occur when the marginal social benefit or cost of a good differs from the private benefit or cost. The socially optimal output level accounts for externalities, aiming to align production with maximum social welfare by considering all costs and benefits. Understanding externalities is crucial to address market inefficiencies and achieve overall welfare maximization.
Topic Definition
Externalities occur when the marginal social benefit or cost of a good differs from the private benefit or cost. The socially optimal output level accounts for externalities, aiming to align production with maximum social welfare by considering all costs and benefits. Understanding externalities is crucial to address market inefficiencies and achieve overall welfare maximization.
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